CS Divesh Goyal

1. PROCEDURE FOR ALLOTMENT OF RIGHT ISSUE OF SHARES:

Call a Board meeting by issue notice of meeting. (Draft Format Attached)

Approve right issue including “letter of offer”, which shall include right of renunciation also.(At Board Meeting). (Draft Format Attached)

 Send offer letter to all existing members as on the date of offer.(Through registered post or speed post or through electronic mode to all the existing share -holders at least three days before the opening of the issue.)

  Receive acceptance/renunciations/rejection of rights from members to whom offer has been sent & also from persons in whose favour right renounced.* (Draft Format Attached)

  Call a Board meeting by issue of notice.

  Approve allotment by passing of Board Resolution. (Draft Resolution Attached)

 Issue of share certificates.

  Authorize to two directors and one more person for signature on Share Certificates.

  Attach list of allottees in form PAS-3: Mentioning Name, Address, occupation if any and number of securities allotted to each of the allottees and the list shall be certified by the signatory of the form pas-3.

  Authorize a director to file E-form PAS 3(Return of Allotment) to ROC within 30 days of passing of Resolution. (Draft Resolution Attached)

  Authorize a director to file E-form MGT 14 for issue of share certificate within 30 days of passing of Resolution.*

  File E-form MGT 14 for issue of share (Allotment of shares & Issue of share certificate: Refer 4 below) & PAS 3(Return of Allotment) to ROC for allotment*

  Issue share certificate*

Make Allotment within 60 days of receiving of Application Money; otherwise it will treat as deposits as per deposits rules.

 FIND ATTACHED BELOW:            

  •       Notice Calling Board Meeting.
  •       Format of Agenda.
  •       Attendance Sheet.
  •       Leave of Absence of Director.
  •       Board Resolution for Right Issue.
  •       Share Application Form
  •       Rejection form Existing Share Holder.
  •       Acceptance from Share Holders.
  •       Resolution for Allotment of Shares.
  •       Resolution for Authorization to sign Share Certificates.
  •       If Any other Draft Require contact me on mail ID given below:

Download Attachment

2. MGT14 is not required to be filed for allotment of shares; however, it is required to be filed for Issue of shares:

  •  As per sec 179(3)(*c*), the Board of Directors of a company shall exercise the powers to “ISSUE” securities on behalf of the company by means of resolutions passed at meetings of the Board.
  • As per sec 117(1) & (*3*), such resolutions are to be filed to ROC.
  • It has been decided that allotment of shares & issue of share are different.
  • To avoid dispute, it is suggested to pass both resolutions i.e.

ü  For allotment of shares as well.

ü  For issue of share certificate in same meeting & file with ROC in MGT14.

3. Why it is safer to renounce right in favour of member ?*

The issue of further shares by a company to its members with the right to renounce them in favour of third parties does not require the issue or registration of a prospectus. However, there is no such circular under Companies Act, 2013.

4. Example:

1. A Pvt Ltd is having two members; Mr Y & Mrs Y. Co wants to raise Rs 2 Lakhs by issue of equity shares. Mr Y & Mrs Y do not want to invest further. Even Mr Y wants to sell some shares. However, Mr Z wants to invest in the Company. It is very costly & complex for company to follow private placement provisions.

Solution: Mr Z purchases 200 shares from Mrs Y. Now , company have 3 members: Mr Y, Mrs Y & Mr. Z. Company comes with right issue, the process of which is very simple i.e. by calling a Board meeting , without opening new bank a/c, without valuation of shares, without need to pass SR in general meeting. Mr A & Mrs A renounced right in favour of C & company able to raise fund easily.

 5. Relevant provisions of Companies Act-2013 are as follows:*
Sec 62. (1): Where at any time, a company having a share capital proposes to increase its Subscribed capital by the issue of further shares, such shares shall be offered–

  • To persons who, at the date of the offer, are holders of equity shares of the company in proportion, as nearly as circumstances admit, to the paid-up share capital on those shares by sending a letter of offer subject to the following conditions, namely:–
    • The offer shall be made by notice specifying the number of shares offered and limiting a time not being less than fifteen days and not exceeding thirty days from the date of the offer within which the offer, if not accepted, shall be deemed to have been declined;
    • Unless the articles of the company otherwise provide, the offer aforesaid shall be deemed to include a right exercisable by the person concerned to renounce the shares offered to him or any of them in favour of any other person; and the notice referred to in clause (above) shall contain a statement of this right;
    • After the expiry of the time specified in the notice aforesaid, or on receipt of earlier intimation from the person to whom such notice is given that he declines to accept the shares offered, the Board of Directors may dispose of them in such manner which is not dis-advantageous to the shareholders and the company.

The notice referred above shall be dispatched through registered post or speed post or through electronic mode to all the existing share -holders at least three days before the opening of the issue.

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(Author – CS Divesh Goyal, ACS is a Company Secretary in Practice from Delhi and can be contacted at csdiveshgoyal@gmail.com)

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0 responses to “How to Raise Capital for Unlisted Companies- Companies Act 2013”

  1. Sumit says:

    Is it necessary to complete the procedure of rights issue before acceptance of Share Application Money….suppose share application money has been received today…..can a company go for rights issue after the receipt of share application money…….

  2. Neeta Agarwal says:

    Can a private company issue rights shares at a premium immediately after incorporation without valuation report…please help asap.

  3. Neeta Agarwal says:

    Can rights shares be issued by a private company at a premium immediately after incorporation without valuation report

  4. Sanjay says:

    In private limited companies, the subscription money doesn’t always come at the same time and since the small companies need the funds urgently, can they do 2 or more allotments for the same rights issue. i.e. Do 1 allotment for the money that already came in as part of the rights and do another allotment for the money that comes in 10-15 days later from the remaining shareholders who also wish to subscribe but did not have the money immediately available. Is this allowed?

  5. Neha says:

    Thank You for such a concise information

  6. Radhakrishna says:

    The renouncement of right can be made to any person or is it required to be made only to MEMBER of the company??? If right is renounced to the person, is there any filings are to be made???

  7. madan mohan gupta says:

    For Private Limited companies the facility SIMPLE LAWS to raise capital in case of needs was very much required keeping in view of restrictions ON INTER CORPORATE DEPOSITS / LOANS. FURTHER WILL IT NOT LEAD TO TAKING PREMIUM FOR RENUNCIATION OF RIGHTS TO ALLOTMENT. THE ONLY WAY TO ERADICATE CORRUPT FINANCIAL PRACTICE IS TO RESTRICT FLOW OF BEARER CURRENCY NOTES. AND ONE ANY WHERE BANKING ACCOUNT FOR ALL.

  8. Ravi Venkit says:

    I am paying interest on Education Loan for my son studies in US.The interest payable is Rs.180K/pa app.can i claim full exemption u/80E or what amt can be claimed.Appreciate your advice on 04vravi@gmail.com

    Rgds,

    Ravi Venkit

  9. NAGARAJAN V says:

    THANK YOU

  10. NAGARAJAN V says:

    ATTACHMENT IS NOT AVAILABLE

  11. Samir says:

    Where is attachment

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